1. When some important variables that enter into economic decision making are no
ID: 1126648 • Letter: 1
Question
1. When some important variables that enter into economic decision making are not observable until after a decision has taken place, firms are said to operate in an environment of:
a. imperfect information.
b. market equilibrium.
c. imperfect competition in the output market.
d. imperfect competition in the input market.
2. In the context of hiring and recruitment, which of the following is not true of a sorting device?
a. It illustrates the more general phenomenon of signaling in markets.
b. It provides an alternative explanation of the positive correlation between education and earnings.
c. It is an integral part of human capital theory.
d. It involves an alternative theory to investment in training and education.
3. Fill in the blanks of the following sentence. Earnings __________ with age, and thus with labour market experience, until age _________ is reached, and then _______.
a. decrease; 40 to 50; increase
b. decrease; 45 to 50; increase
c. increase; 40 to 50; decline
d. increase; 45 to 55; increase
4. The human capital model has strong neo-classical underpinnings. Why might a heterodox economist disagree with this approach?
a. Because some of the predictions that flow from the model have turned out to be wrong
b. Because the earnings function that stems from the human capital model has not been empirically validated
c. Because it is based on the assumption that most individuals have a wide degree of choice in regards to how many years of education that they obtain
d. Because there are certain challenges involved in the estimation of the earnings function that stems from the human capital model
5. What is the idea behind the income-contingent loan financing scheme?
a. Tuition should be lowered for all students in order to improve access to higher education and reduce student debt-loads upon graduation.
b. Grants awarded to many students should be raised in order to improve access to higher education and reduce student debt-loads upon graduation.
c. Tuition should be raised somewhat in order to boost the quality of education provided, but repayment of student loans should be geared to the student's income after graduation.
d. Tuition should be raised somewhat in order to boost the quality of education, but in the event of a default, student loans should be forgiven.
6. A human capital earnings function is:
a. a function relating an individual's earnings to his/her education level.
b. a function relating an individual's earnings to his/her characteristics that determine productivity.
c. a function relating an individual's earnings to his/her level of professional training in the particular field.
d. a function relating an individual's earnings to his/her family background.
7. It is indisputable that the degree of inequality in the distribution of wages has risen drastically in North America over the past 35 years or so. The most widely accepted explanation is that:
a. The returns to education and to unobserved skill have increased.
b. The decline of institutions tends to raise the wages of lower-paid workers.
c. The increased international competition and imports tended to positively affect low-wage workers.
d. There are increased exploitation of labour by unscrupulous multi-national firms.
8. Which of the following INCORRECTLY addresses the problem of "ability bias?"
a. In the earning function, ln Y = a + bS + e, where log wages depend only on the level of schooling, S, and unobserved talent, e. The OLS estimate of the return to schooling b is biased, because unobserved talent, e, is correlated with schooling.
b. The estimated coefficient may overstate the true causal effect, if more highly educated individuals would have earned more than less educated individuals even with the same amount of schooling as the less educated.
c. The problem of "ability bias" can be addressed by "natural experiments" technology.
d. Recent empirical studies have found that the problem of "ability bias" is exaggerated.
Explanation / Answer
1.When some important variables that enter into economic decision making are not observable until after a decision has taken place, firms are said to operate in an environment of imperfect information. This happens when there is asymmetric information of hidden information
2. In the context of hiring and recruitment, It illustrates the more general phenomenon of signaling in markets is not true of a sorting device
3 Earnings _____Increase_____ with age, and thus with labour market experience, until age _40 to 50________ is reached, and then ___decline____.
4. The human capital model has strong neo-classical underpinnings. A heterodox economist disagree with this approach Because there are certain challenges involved in the estimation of the earnings function that stems from the human capital model
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